Support for “free” customers?

Many vendors have a hybrid model through which some customers get completely free service, with the hope that some will switch to fee-based service. In that situation, what are the options to deliver support to the free segment of customers?

1. Provide the same level of service for all customers. The idea here is that all customers, regardless of their current status, may upgrade to paid service, hence it makes sense to provide the same level of (assisted) service to all customers to get them to sign up for paid service. This is a common strategy for startups who simply must attract enough of a base to survive. It’s often not a sustainable strategy for the long run, as clearly paid customers expect higher value and a higher level of services that can be afforded for the masses.
2. Provide differentiated service to paid customers. The idea here is that paid customers are clearly more valuable to the company, even if today’s free customers may turn into paid customers tomorrow, or eventually. So while free customers are given a minimal level of (assisted) service they don’t get the same perks as paid cusotmers. Under this scenario the higher support levels could, in themselves, be a large part and sometime the main part of the incentive to move to a paid offer.
   Typical differentiations include the support channel (for instance paid customers can receive live chat or phone service while free customers only get email support) and the speed of answers, with paid customers being guaranteed a response within hours while free customers may wait for days.
3. Provide assisted service only to paid customers. The extreme version of the strategy above is to provide no assisted support to free customers, only self-service. In this situation self-service options are often lavish, with online troubleshooting and customer forums, but there’s no way that free customers can get individualized attention. The problem with this approach is that free customers never get a taste of how good the service can be if only they upgraded to a paid option (but then again the same can be said of the differentiated option above, where the quality of free service can be quite low.)

How do you choose between the three options? It’s really a strategic choice that must be done at the executive level and match the model for acquiring customers. And as always the decision can change over time, usually moving away from free assisted support.

Free Training with Support?

A well-educated customer is a better support user: more accurate problem descriptions, fewer problems to begin with, no more lengthy phone tutorials, a better chance that recommendations will actually be carried out correctly…  With that, some support organizations are including “free” training with their offerings. Here are some possibilities. Try them!

• provide self-service training on the support web site.
  Idea: provide short videos of training modules that can be played from the support web site. The videos can be taped on a relatively low budget and the quality doesn’t need to be very high for short footage, and you can repurpose existing videos such as webinars. They can be free for all users or reserved to holders of support contracts.
  Pros: relatively inexpensive for short videos or repurposed footage; very helpful for short topics (e.g. how to change a printer cartridge; how to set options); always available to customers; low effort and low cost for the customer.
  Cons: not practical for complex training; requires a good search function if you have many; could create conflicts with the training organization (although you could create short videos that do double-duty as advertising for longer courses)

• hold regular webinars on popular topics
  Idea: support staff (or others, if you can coax them to do it!) lead webinars on specific topics. They can be up to an hour in length and include a question and answer period
  Pros: relatively low-cost, especially if you can offload common questions that would otherwise require 1-1 assistance; support engineers will appreciate the variety, at least some of them will; low cost for customers; can be repurposed into self-serve videos
  Cons: requires some amount of infrastructure (registration, online system); more staff-intensive than self-serve; complex topics cannot be covered in an hour; requires a minimum number of customers to be worthwhile; some customers will not want to wait for a scheduled webinar

• include space-available training with the support contract, at no charge
  Idea: as long as space is available in regular training classes, why not allow customers to attend at no charge?
  Pros: great for in-depth training; uses training seats that would otherwise go to waste; may encourage customers to attend classes on a fee basis; makes the support offer more attractive
  Cons: it may make it difficult to sell training classes at the regular price; customers still have to travel to the training class and pay for the travel expenses; because the training is on a space-available basis it makes it hard for them to plan their time and they have to wait for months for a seat

• offer free reserved seats for training events with the support contract
  Idea: include a number of reserved seats in the support contract; the seats must be used within the year
  Pros: good for in-depth training; a wonderful addition to the support offer; customers appreciate being able to hold a reserved seat
  Cons: requires an arrangement with the support organization that will involve money transfers and some kind of tracking system; the training organization may oppose the scheme if there’s no appropriate compensation; customers may fail to show up since they are not paying for the training (hint: impose a no-show penalty like you would for paying customers, through which they forfeit their free days)

Maintenance Math

(with thanks to JB Wood)

maintenance $ = # contracts * average contract size

which means:

1. The renewals rate is critical. And especially with smaller customer bases the attach rate (% new sales that include support) is also important.

2. Discounts erode the average contract size so they must be watched. For maintenance disocunts are often “forever.”

The psychology of percentage vs. fixed pricing

Quick, which is cheaper? Premium Support priced at 100k PLUS the 18% (of license) Standard Support or Premium Support priced at 21%  of license?

If you’re like most people, that 100k sounds big, doesn’t it, bigger than the measly 3%. But in fact, if the license exceeds 3.33 m (certainly a large amount!) you’re better off paying the 100K than the 3%.

What does it mean for pricing? You should be aware that a large fixed fee may frighten customers away, so consider using a pure percentage, or split the difference as in  “50k plus 20% of license”. At the same time, a high fixed fee is useful to set a minimum entry price so you could add a caveat, as in “21% of license with a 100k minimum” or “21% of license with a 150k minimum”.

Always run the computations using with several likely license price levels until you are satisfied that you can both get your minimum prices and an attractive scheme for the customer.

What do support partners want?

1. A good product (few bugs)

2. An opportunity to make revenue, both for selling and delivering support and for selling additional services

3. Easy process to get started, including a good training program & few bureaucratic hassles

4. Good ongoing support from you, the vendor, for escalations

Come to think of it, they are looking for pretty much the same thing we are!

Incentives for Support Partners

If you are using support partners the standard setup is to split the revenue with them (typical splits range from 25 to 50%) but a better idea would be to build a reward system based on performance. Say the partner usually gets 25% of the support revenue. What you may want to build is a system through which partners that escalate a smaller portion of their cases and/or achieve high levels of customer satisfaction get an extra “bonus” based on performance. The bonus would be a back-end (after the fact) payment, unlike the revenue split.

In most instances the issue will be measurement: how can you capture the escalation percentage, or customer satisfaction accurately? Focus on accurate measurements so that the incentives can work properly.

But what do customers want?

A critical ingredient in creating and rolling out support offerings is customer input: what are the features that make a difference? what do customers value and will pay for? what’s missing? Extensive customer surveys take time and significant resources, neither of which may be abundant. But you can start with what you have: your customer satisfaction survey.

You have to go beyond the number and actually read the comments. It’s easier than you think: I just went through several months‘ worth of comments for a customer project and although the file was dauntingly thick it did not take more than a couple of hours to read them all. What did we find? That customers really want attention: they want a phone call rather than a volley of emails; they want regular status checks; they want clear and frank conversations when bugs won’t get fixed. (This was a high-complexity support organization where cases routinely require days or weeks to resolve.)

So what we learned in this instance is that the best investment was soft skills training — and that’s just what we’ll do. It turns out to be a lot cheaper than the extensive technical skills re-training the customer suspected would be required and a lot easier than having to roll out brand-new support offerings.

An unexpected bonus of reading the comments is that many are positive! We all need a pat on the back from time to time…

What if the customer says “I can only spend $x on support”?

In tough times pricing negotiations can get very tough and some customers are essentially setting their own price. They decide how much they will spend on support and present the vendors with an ultimatum: they won’t spend more than a certain sum, take it or leave. What can a vendor do?

1. Establish a relationship with the head of the line of business group that uses your product prior to the ultimatum. Price ultimatums are typically set by the purchasing team, which usually knows little about the way the support contract benefits the company. If you can instead negotiate with the head of the business group that uses your product you will find much more understanding of what’s needed. Naturally this assumes you planned ahead: relationships take time to evolve.

2. Demonstrate that the current price is a great deal. Often support pricing carries hefty discounts that originate in the history of the business relationship — but the “list price” is rarely shown in the quote. Try showing it. Psychologically the bill seems lower if it is a result of a discount (and many purchasing agents are compensated on the discounts they negotiate, so could become more accommodating if you serve one up to them.)

3. Show options. Here again the same bill can seem lower if paired with a higher option. Try sending all bills with two options, the current setup and the offering level right above it.

4. Use the next-lower option during negotiations. Say you have three support offerings, Bronze, Silver, and Gold, and the customer bought Silver. If they balk on price offer to sell them Bronze. At least you salvage some money and with any luck the users of the support will push to restore the level they enjoyed to begin with. (I would not show the lower option on the original quote; keep it as a back-pocket option.)

5. If needed request “custom” concessions. For instance let’s say the customer refuses Bronze support (they need 24×7) but won’t pay the price for Silver. Perhaps you can cut down on the number of technical contacts as a partial compensation for your concession. Generally speaking do not make price concessions without asking for something in return. Remember that concessions you make today will likely carry over “forever.”

6. Remember that mission-critical tools are just that. If your customer’s usage of your products is mission-critical they may negotiate very hard, but in the end they do need the service. Offer a few low-cost perks to soften the edges (e.g. an additional support contact, a few free training seats) but hold firm on the overall price.

Revisiting the idea of fixed prices for support

We’ve talked about fixed pricing before on this blog (here and here), mostly as an alternative to the common practice of pricing support as a percentage of the base license fee, a standard approach in the high end. Although I’m not necessarily a fan of fixed pricing because I’m concerned that it may create some missed opportunities in the high end one area where fixed pricing may be particularly strong is in resisting discounts. As we know customers often obtain very significant discounts on software licenses. If you compute your support prices from the license price, a generous license discount will translate into an even more generous support discount (assuming that you calculate pricing from the discounted price.) So starting with a fixed price may help you avoid runaway support discounts.

Does premium support require an assigned support engineer?

The idea of assigning a support engineer to an account is simple and attractive: instead of working with a randomly-assigned person with each new case, the customer can count on working with the same person each time (or close to each time, as even assigned support engineers take time off.) The assigned support engineer gets to know the customer well, which speeds up resolution, and can often provide proactive advice on configuration and the like.

Experience shows that the idea of having an assigned support engineer is very attractive to customers and customers who purchase a plan that includes an assigned support engineer typically renew in higher percentages than customers with a standard support plan.

Before you rush to implementing such plans, however, think about how you will staff for it. If you have a particularly wide portfolio of offerings, will you be able to located someone, anyone, with knowledge of all the products a particular customer may be running? It’s always possible to assign someone who knows the main products the customer is running and can get help on the others but that can get awkward (and defeats the goal of fast resolution.) The other issue is more subtle: what if the customer has a large number of issues at once? Will resolution be hampered by the diktat to work with that one support engineer? With a regular customer you would simply parcel out the cases amongst several engineers but that would be more delicate under an assigned support engineer program.

I’m seeing companies experiment with small “account teams” instead where customers can work with a handful of individuals, which may deliver the best of both worlds: personalized service and flexible scheduling and specialization. Maybe that would work for you?